tv Venture Capital CSPAN August 17, 2016 10:53pm-11:20pm EDT
in relatively short order. shorter cycles were four or five years and liquidity cycles were longer. gone on now as fundraising cycles have shortened, liquidity cycles have gotten longer so i describe it sphincter. it >> he did just say what he thought you said, by the way. >> so we're pushing this capital out and kind of feeding the money, nd lps give gps gps give to startups, startups get liquid and georgia back to lps and it starts over again. when you have the snake getting meler and fuller, it reminds we're in brooklyn so not exactly but there's a song method man where one of the methods of torture they talk say i'm going to sew your rectum shut and feed you. what it's like to be an lp today because the dynamic he escribed is really an
unsettling long term dynamic for long term ecosystem health. is it happening? i know on the one hand it seemed startups were raising unding every six months or so but critics very recently said these guys are racing back to investors before their paper gains disappear. -- ou think that's so >> so it's a really important point because right now, a lot of venture funds are looking paper, right. and in fact, one thing that's a pet peeve of mine is i get day that say our fund is market whatever and somebody said to me the other just had a bunch of mark-ups so our fund is sitting on cash. no it's paper on cash. market stuff before business school and we always talked about the pit you get in turns omach when a trade into an investment. similarly i fear as an industry we're headed for this moment unrealized -- because
everybody has unrealized things in the portfolio. there's a moment when the unrealizable omes and that's the moment of nausea. bill is right. last fundts to be the in the market when the music stops. it's going to be a game of lp ical chairs and from the perspective, everybody is tapped out both in terms of capital. people blow through their companies come and we're all d so exhausted. there's this kind of psychic lps.ustion amongst everybody has been running too hard and kind of reacting rather than being proactive. andy, you're from union square ventures. 166-ish million dollar fund. >> we don't really talk about it. >> okay. filed a form with the s.e.c. suggesting as much and you had in 2012 so a fund you're sort of sticking to your traditional trajectory it sounds
like. josh, what are you. you raised your last fund in 2014, $175 million. you in the market this year? >> we typically raise -- target raising every two and-a-half years. that would put us on pace to raise at the end of this year. okay, great. do you feel s, like -- you can say no. you obviously would never say no good reason. when i spoke to bill he made this point that it's very hard say no.because you you can lose your seat at the table possibly for the duration career as an lp. do you feel that's true? >> that's absolutely true and we wereeresting because talking about this back stage. office, which s is kind of the exemplar invented y basically the game in a sense from the institutional investment perspective. one of their secrets to success getting off the bus one stop too early rather that ne stop too late but
takes a lot of courage. and you know, most investors lack courage because they focus career risk and there's a whole principal agent problem there. furthermore, once you say no to fund, you're forever in that gp's bad graces. >> right. and we all have examples, i'll say i wrote a blog a long epistemologyed the of investing. why do we believe what we believe. what justifies our beliefs? what made me think of that when to the xl i said no facebook fund twice when i was as rinceton and once again they were raising. everything in that moment said that was an easy no and boom greatest p one of the personaer and i've been nongrata, not explicitly but speedsay i'm not on their dial. >> andy, us v has famously returns.l but speaking more broadly, this is a very funky market. how do vcs turn their paper
into cash on cash returns? it's not really up to us. we don't have control over it. the companies have control over it. partner fred has been outspoken that the company should be going public as a way to get liquidity. companies should be going public. that's one way to do it and that's the number of issues is decreased of ipos has so therefore companies don't get liquid, we don't get liquid, chris doesn't get liquid. i'm sorry, i'm having a bit of trouble hearing you. but josh, what do you think? i tend to agree with andy of iposre seeing a lack in the market. i think part of that is caused y the fact that there's a massive dislocation between how are valuing ts companies and how public markets are valuing companies. we're at this rare moment in time -- you know, it used to be hat private companies would aspire to go public so that they could achieve the public market valuation.
we're in the rare moment in time where it's almost the opposite. minor league ball players are getting paid far the professional all-star m.v.p. major league ball players. out ntil that works itself in the market, it's going to create a really challenge iing e these companies that are being valued in the private markets to realize anything near price in the public market. >> if mashlts are efficient, occur atlibrium should some point, correct? >> and it looks like we might be seeing some of that correction in the market. >> it's interesting because here's a real echo chamber dynamic, and one thing that lways strikes me as an lp is when you do get these disconnects, it's very difficult glide back to kind of this rational ordering. you get these , funky kind of risk-adjusted inflections where you've
got, you know, kind of private companies more value than public companies. if i were -- if i could wave a magic wand i'd invent a way to private companies because the would kind of create equilibrium. the steal prices associated with private companies makes it impossible to do. right. public companies trade every day. good news, they trade. news, they trade. private companies typically of two reasons. when there's good news and the to fundraise or when the companies needs cash so badically that they're willing news and n bad capitulate on price. and what that means is that need to see to companies -- some of these work ies will have to through their cash before these private companies trade to sort of where the market should be. know and i also think that we're at this interesting point where the n't know
industry is trying to figure ut, are we using the right comps? in tech ng companies innovation marketplace and should be valued as such or hould they be valued as lenders? should e-commerce -- disruptive be labeled ompanies as real technology innovators or mattress company, and valued differently based on that. >> and even companies that are very clearly creating markets, like uber, nobody knows what to price it at. i thought it was interesting, ventures talked to business siders friday or this weekend and he thought eber if publicly would go out at about $25 million, which is far than some of these values. do you think there's maybe a moment? d sometimes when i talk to ipo experts, oh, i think it went thought maybe that would be it. i believe we may be seeing the
first tech company go public this week. i don't know -- i think it's a acacia ng company, communications. are you thinking once bloomberg goes. certain company everybody is kind of waiting on to open up this market? not necessarily? [laughing] investor so stage for me, i typically funda the earliest end of the cycle and sort of e the prognosticating on what is that public ed moment, the market investors. >> what are you guys seeing in m & a. investors also like to point out the fact that these companies, google, microsoft, apple, facebook have these enormous balance sheets but they seem reluctant buyers. i mean, are your companies these companies? high think there's a level of activity. i don't know if there's a high
prices desire to pay that may be divorced a little bit from fundamentals. and maybe there was more of that seems like and it there's less of that right now. >> i guess probably also sort of a catching a falling knife sort f a thing, you know, why not wait another six months and see where prices are. >> yeah, i mean, there are bviously some companies where they buy them for far more strategic reasons in terms of technology, access to talent, filling a critical strategic hole. you know, or access to customers whatsapp look at the acquisition by facebook in that regard. it's financially driven it's obviously going to be subject to the same market forces that the are going to be subject to. >> and what are you seeing in terms of valuations? at least it oast seems like valuations are down a little bit. zachary of crv who i
interviewed maybe last week was aying the one exception is celebrity investor, meaning serial entrepreneurs who created in a space where they already have some expertise. is that true on the east coast as well? seen it on both coasts. we've seen valuations have taken a slight dip. four member in the last ears, the average seed stage valuation has almost tripled. 20%, en if it's down 10 or it's still a very attractive entrepreneur. >> what do you think, andy? don't , you know, we really track valuations that much. every deal, there's a moment in there's a company that desires to have an investor price and a invest at a ires to certain price. i don't see any generalations lower than gher or before but i suggest there's uncertainty in the market so
flebl eneurs may be more than they have in the past but i don't really track valuations. vcs, you don't think are more price sensitive than in the past? investa firm that doesn't that often, you know, 8 to 10 times a year, 8 to 10 data really expandsn't out to generalizations. >> you do see many companies? sure.h, and we're focused on it obviously but for us we need to think is the we right amount of money and get an ownership position that allows like chris r people their returns. entrepreneurs are being more flebl. can you get more for your dollar? maybe a couple of years ago they oh, we'll give you 15%. now, they're like take 20%, 25%. i don't know how you think about it. we don't attempt to try to get more for our dollar. a commodity. is the right amount relative to the risk relative to our just to deliver our lps some money.
we don't want it to be that much because it comes out of the entrepreneur side. point. t >> it's interesting too because i talk to a lot of portfolio companies because they see me as a be an honest broker in sense. nd not one of these from shark tank. just kidding. but it's interesting because alto at least where i live, valuations xpectations have been kind of cranking ever upwards and i think we're seeing this first kind of chill where, you know, to see some tech layoffs and, you know, from my feed, i invest in a funds.of dozen from my feed, i'm a second derivative guy. terribly smart but i remember from math change, the rate of change is the rate of change i guess. market is still going up, the rate is slowing in terms of mark up. we saw in q4s what and q1 and i think as we see the
arket plateau in terms of expectations, i am seeing some investors, you know, the market is not clearing for some right, for the transactions to start getting done and hopefully we'll see a expectations tor and entrepreneur expectations, i should say, you know, to kind of interesting o an kind of return potential opportunity. as the market has gotten choppy over the last couple of it's also important to ealize you have a whole generation of found ers and to some degree of fund ers and investors who have never been turn.gh a down if you've been in the industry the last seven years, you've up. straight so it's also important. i don't think it's ever as bad it is and it k probably wasn't as good for the last seven years. where the marks are, most venture firms probably have inflated marks right now that topic ay on
josh you have identified seven years. kind of and i'll even say that i think '08 was kind of a gag. -- and i nies shouldn't say that necessarily but most companies have cash for 18 months at any given time and that was a very short down turn. deck as more of a slide than a down turn. with a es, and i meet lot of folks raising funds and 08, i did xyz. i remember in '01 and '02. i was at princeton. i remember speaking in math what asymptote meant. there was a grinding and every value and we a were asymptoting towards that line. grinding down turn. that's where you had financing risk and operations risk. that's where you had all kiepdz syndicate risks. nobody has seen for 15 years. >> and you don't necessarily -- you don't think into that? >> i don't think we're heading
into that but i think people who kind of puff their chest and say i've lived through a down turn have no clue. generations removed in terms of companies from the last . al down turn >> but on some level it is different this time. >> yes. is nd part of the challenge figuring out how and in what ways it's different. i agree it's a challenge when an environment of 10 years of rising asset prices, that's the rhythm or the cadence know, rising asset prices. when they're not rising, you to learn new rhythms and cadences. at the same time in that 10-year period we all got computers in our pockets. so the dynamic does feel like .t's different obviously our jobs are to figure out what ways it's different and prices.earing at the same time, it doesn't feel like the world is falling apart here. >> it doesn't feel like the falling apart but the question really is, how different is it? me it's different but then again you hear
investors say, you know, there's fundamental misunderstanding even though the opportunity is global and even though everyone a smartphone in their pocket, there's going to be this very small number of breakout winners. you guys agree, disagree? -- is the ortunity size of the winner's circle changing? getting e winners just bigger? i think that's sort of always -- yes.ou know, yes and at some level, the leading today who are the incumbents that really didn't exist 10 years ago are positions.powerful they have an incredible advantage to them. t the same time, the opportunity set seems broader too as well. and that's a tough balance to strike. found in my first company, cofounded it in '92. -- the year before the web browser was invented and saw the internet sort of rise remember everyone talking about how the internet is going
o disrupt every portion of daily life and it really has and yes, while you now can go global nd yes you now are mobile, i don't believe that we're done creating amazing companies. believe that 't this time is fundamentally is 3x nt and this time larger than the last time and, you know, the market is going to said o figure out as andy how to price that. everyone was talking about a amazing ve bubble when went public and they went public at a value of $500 million. you now have jet.com which is the amazon 2.0 which is raising markets at a $1.5 billion price. still opportunities are there. believer that you're going to see a massive increase in the number of epic companies that are created. from my seat, one thing
i'm always cognizant of is the asset is largely a function of the price you pay and also the capital you consume. we've seen, you know, pricing go up and up and up in terms of startups, you know, jet an example or literally you can point at any startup. raising -- one thing that always strikes me as a quick aside is if i look at my and josh is in my portfolio first round and first companies bunch of that would be in the s & p mid00, which is amazing, right. entrepreneurs raise money in the private markets of these valuations and at the end of the day you've got to think do i put the moolah in the coolah. valuations we're investing in now to the exit exit e open up that sphincter and the capital stream comes back to me, are we getting expect s of returns we or are the returns becoming more pedestrian? so what do you need to believe? and i believe
this time it is different, you know, that you will see larger outcomes, that's great, but all portend bigger holes. that's what i worry about. >> the paradox is that -- and josh. i disagree with i think the opportunity set is much greater than 3x than it was first started your company. could be 10 or 20 or 100x. so i don't think that to me is a reality. the question is where do investment returns come from that? that's uncertain and if the investment returns don't come to feed what we need to return to you, what are the implications of that? what are the implications of to the next generation of funds or entrepreneurs? i don't have an answer to that. i find that to be a key question. me, the question is less or greater than the opportunities? they are. fundamentally bigger. >> in the meantime, are you ipo market is the kind of shot right now and i slow, are you seeing
that your follow-on investors are changing at all? keep hearing about hedge funds, mutual funds sort of recharging, these parent opportunities to do deals, a menlo of funds recently, ventures raised opportunity funds to tackle this particular gap.rceived real is it real? hard to take one quarter or two quarters and try to extrapolate. e're still seeing that good companies can get funded in the follow-on market by good investors. are, you know, as the markets have grown -- as the moretions have gone up, as companies have sort of achieved nicorn status, we've seen more investors, nontraditional investors come into the space, seen the n't yet surrender of the existing traditional venture investors.
>> and i want to go back to something i said. is never either open -- is neither open nor shut. it is what it is. company's choice to go public. they might not like the process, they might not like the it is always open and the challenge some of us are is the disconnect between the private valuation and what companies think they can get in market. the ipo market is always open. time.ost out of any last thoughts? >> put the moolah in the coolah, guys. >> thank you so much for being here. >> thank you. thanks, guys. [applause] in new york, a techcrunch panel debates the ros and cons of internet advertising.
>> so let me get just a little bit more audience participation the interview. how many have downloaded and used an ad blocker? of the room.0% most of the front part. the back people aren't even listening so that's fine. like, you know, there's people at least that are exposed to the technology. on a good at least day, i'm a journalist. i actually get paid mostly advertising and through wonderful events like this. off ear ck plus takes or obviously has taken off, as it continues to grow, am i going a job? of > no, i think why this potentially hurting is the business model that doesn't work apps that clearly don't provide any value to the consumer is to me a failed which i think is the reason this needs to evolve and the interesting thing is all the people that install an ad blocker, they ads.t hate
they're just annoyed by the really intrusive ones so that's a program called acceptable ads, which basically publishers helping show alternative less intrusive targeted at lly people who have opted out of traditional online ads and what found out is that fewer but better ads provide more value. we're creating this win-win situation in which the user gets better experience at the same time publishers can make ore money while still honoring user choice. >> so let's talk about the acceptab ads program. just to make sure i understood you. there are publishers now who make more money with acceptable of than they were with sort the traditional banner ads before? till: yeah, i think it's just realize they're a different segment of users. may re regular users that be completely fine with the flash banner ads but then there tech-savvy lly the
people that install an ad blocker and just need to be in a different way and what we're establishing is a way on arget users not only their profile but just under ad references and i think this really creates a lot of value for publishers which is why now out of the top 100 web sites in u.s., 40 of them have acceptable ads on their page and shows that this works for publishers but also on board. moderator: tell me a little bit more about what makes an ad acceptable. the distinction there? till: i think the most important every user can decide that for himself. every ad blocker, every user can figure out what preferences they have. but for us, it is important to good default settings that find exactly the perfect balance experience on er the one hand and enough
opportunities for publishers on the other hand. we put a lot of research into but we're t balance now in the process of opening that up so we're currently stablishing an independent committee which will have members from all the relevant that have a roups stake in online advertising and handing control over what constitutes an acceptable ad we theeve we can really evolve problem so we will have journalists there. e will have publishers, advertisers and also ad companies and if we bring table e together at one we think we can really evolve this program. oderator: so it will be what you call a council essentially, like a board or something like that? ill: yeah we call it the acceptable ads committee. moderator: so they'll kind of set what the broad guidelines user can e individual still decide what their settings are even if they want to see at all. e ads till: absolutely. moderator: i think there are some people who see this idea that h